Taveras warns of Receivership, Bankruptcy at morning Press Conference

Reports are coming in from a press conference that Mayor Taveras held this morning, things aren’t good. The Mayor is calling for concessions from non-profits and retirees or the city faces receivership and bankruptcy.

MAYOR TAVERAS URGES ACTION TO SAVE PROVIDENCE

Mayor points to sacrifices made by Providence taxpayers, teachers, firefighters, police. Calls on tax-exempts and retirees to share in City’s sacrifice. Announces plans for town hall meeting with retirees.

PROVIDENCE, R.I. (February 2, 2012) – Providence Mayor Angel Taveras addressed the residents of Providence, lawmakers and members of the press during a media conference in his office earlier today on the difficult fiscal situation Providence faces. During his remarks, Mayor Taveras warned that without additional sacrifice from the City’s large tax-exempt institutions and retirees, Providence will be pushed closer to the brink.

“Our firefighters, police officers, teachers and taxpayers have all sacrificed in the last year and helped Providence avoid catastrophe. However not everyone has sacrificed,” Mayor Taveras said. “The failure of our tax-exempts to sacrifice has left a $7.1 million hole in our budget. There are more than 600 retirees collecting 5 and 6 percent compounded yearly raises. These retirees have refused to sacrifice and are costing Providence taxpayers tens of millions of dollars of year.”

Mayor Taveras urged Providence residents, business leaders and policy makers to call on the City’s tax-exempts and retirees to share in the City’s sacrifice. He directed residents to visit SavingProvidence.com to join the administration’s efforts to weather the current fiscal crisis.

Mayor Taveras pointed to several state legislative measures his administration will support during this year’s session to help save Providence, including legislation that will ensure the City’s tax-exempts pay for the critical services the City provides them and legislation that provides the City with the ability to collect property taxes on buildings used for purposes unrelated to the educational or healthcare mission of those tax exempts.

Providence’s large hospitals, colleges and universities own nearly $3 billion of property across the City which, were it taxable, would be worth nearly $105 million in revenue for Providence. Brown University alone owns more than $1 billion – property that if privately owned by a taxable entity would generate $38 million of revenue for Providence.

“A Providence taxpayer who owns his single residence home in the West End neighborhood and drives a 2002 Toyota Camry saw his taxes increase more than 12 percent last year,” Mayor Taveras said. “Our taxpayers already subsidize the tax exempt institutions in this city. For example, it takes the revenue collected from 19,000 taxpayers like the one I just described to account for the $38 million in property taxes not paid by Brown University.”

Mayor Taveras also called on the City’s retirees who have been the beneficiaries of guaranteed annual raises that compound at 5 and 6 percent each year to share in their neighbors’ sacrifice. The City’s 25 highest paid retirees or their spouses collect at least $109,000. In all, Providence taxpayers are paying $36 million this year in growing pension costs.

The Mayor also pointed to the $38 million taxpayers contribute each year to cover retiree health benefits and announced that the City Solicitor’s office will file an appeal today to Rhode Island Supreme Court asking for an expedited review and a reversal of her ruling. The recent decision that blocked the City from moving Medicare-eligible retirees from the City health plan to Medicare created an additional $8 million gap in the City’s budget.

“As a city, we no longer have the ability to sustain these benefits. It must stop now,” Mayor Taveras said. “Our retirees must be a part of the sacrifice to save Providence. Either retirees will join their neighbors and make a sacrifice to save Providence or they will follow the path of Central Falls retirees who have had their full pensions slashed drastically in the courts.”

Mayor Taveras announced that he will host a town hall meeting with Providence retirees on Saturday, March 3.

Since last year, the Taveras administration has taken proactive measures to combat the City’s fiscal crisis. Mayor Taveras cut his own pay by 10 percent and voluntarily refused a City pension. The Mayor’s office budget has been cut by 13 percent. The administration has revised contracts with the City’s firefighters, police officers and teachers. The City raised residential and commercial property taxes and reduced the allowable deduction on the vehicle excise tax. Mayor Taveras thanked the City’s residents for their sacrifice and asked for their help to encourage those who have not sacrificed to come to the table.

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About the Author

Jef Nickerson

Jef is Greater City Providence's co-founder, editor, and publisher. He grew up on Cape Cod and lived in Boston; Portland, Maine; and New York before settling in Providence. In addition to urbanism, Jef is interested in art, design, and ice cream. Please feel free to contact Jef if you have any question or comments about Greater City Providence.

Comments

Honestly, with the national economy stuck in neutral, I cannot see the city avoiding bankruptcy. Just not enough revenue, too many liabilities, business activity sluggish. It’s sad. I try to support all local businesses but it doesn’t seem like enough. It’s sad. I feel like the future of 2 whole generations has been wasted.

Agreeing with one of our Facebook commenters, I think it is also well past time for us to be talking about regionalism. Schools, Fire, entire cities… we need to be finding how we can maximize services at reduced costs.

I feel like it’s too late to be talking about regionalism. The city of going to run out of money in 5 months. My feeling is that the non-profits will not come through, the retirees will not agree to concessions, and any attempt made to reduce employee benefit costs will just get overturned by the courts. What tools are available for Providence to avoid bankruptcy at this point? Does anyone have any ideas? Because where I’m sitting, I just don’t have any hope.

Central Falls / Bankruptcy
Providence / -$7.1 million ?
Woonsocket / -$2.7 million ?
East Providence / -$6.1 million ?
Pawtucket / -$1.2 million ?
What others? Actual figures won’t really be know until it gets closer to the end of the fiscal year. Consolidation services or merging cities might not be the answer, as long as the pension problem still looms.

I know there was a whole series of discussion about this on various forums, but it still absolutely boggles my mind. Working people don’t get 5% raises unless they are excellent at their jobs.

I don’t think anyone is going to volunteer to help. Nice job my the Mayor to bring these issues up, though. I think it is going to take the heavy hand and use of the courts to get any changes.

On the non-profit side, I’m really disappointed in Brown. I kind of expect JWU to be cheap and RISD really struggled for a bit with the recession and kids leaving school. Brown has a good endowment and gets a free pass. Yale does as much or more economic development in New Haven as Brown does here, and they still make a large payment in lieu. Part of this is that Brown has many more undergraduates and does not receive as much grant money but still. It’s kind of ironic that Brown is the leftist of the Ivies in terms of politics, but donates the least to local government.

Regionalism won’t save us by June, mostly because it wouldn’t be able to be negotiated and in place by June, but perhaps it could help us by next June. Because I have no doubt, even if the Mayor gets everything he wants, we’re gonna be facing another shortfall next year. Unless housing prices make some dramatic turn-around, our property tax revenue will continue to dwindle.

And on regionalism, we really need to stop drawing such a solid line between City and State. For example, Providence (and to a lesser extent Cranston), host a lot of state property, plus non-profits, plus Providence is the economic engine for the state. What if the state funded our Police to make up for that, as an example? There’s no reason it has to just be the municipalities pooling our resources, without the cities and towns, there is no state.

1) Tax the university properties, particularly any building that contains dormitories.
2) Tax parking lots at quadruple the rate of lots with property. That will stop the tearing down of structures.
3) Tax the church properties. If they want to play in the political field, they have to pay the price of admittance.

Perhaps Brown could contribute more, but I think that the mayor’s speech is a bit misleading and gives the impression that they’re just freeloading.

From Ruth simmons: “I explained that Brown is committed to working with the city in mutually beneficial ways, but that we could not simply provide unrestricted funds to address a structural deficit that had accrued for many years, and, according to the Mayor’s Municipal Finance Review Panel, was the result of reductions in state aid, high employee and retiree costs and a reliance on one-time budget fixes.”

I’m inclined to agree that even if Brown could afford to pay a bit more, the deficit is neither the University’s fault nor it’s responsibility.

In 2003, Brown and the City reached an agreement that was supposed to stand for 20 years, amounting to $4 million in annual payments, plus taxes on commercial property. They recently offered $10 million over 5 years on top of that, which Taveras rejected. If the city agreed to a deal in 2003, I don’t think it’s unreasonable for Brown to want the city to honor it.

Plus, if it wasn’t for the value that the city derives from the non-profits, do you really think the city could get $38 billion in revenue out of that land? I think it may have actually been in the Projo comments that I saw someone say that without the non-profits, Providence would be another Fall River… just about.

I am completely shocked that retirees get 6% cost of living increases each year. They’re making more money per year sitting on their asses than the people who are doing those same jobs. It’s absolutely ridiculous. It’s a shame Taveras had to come into this at the fault of the previous administrations who gave the unions everything they wanted.

Tony P has the right ideas. Tax any non-educational building/space. If a building is only 50% educational and the rest is making profit, that property should be taxed at 50% of its value. Tax surface lots at their potential value, not at the actual value. And start taxing the Catholic Church in RI since Bishop Tobin seems to have no problem being involved in the political process (something he’s not allowed to do by law and maintain his tax-exempt status).

In addition to those, I agree that we need to start thinking regionally. Consolidating our police, fire, and education departments would be a great start. Of course, the unions will never go for it, but someone has to stand up to them (though the threat of bankruptcy should be enough to scare them since that could totally throw out everything they get right now).

Bankruptcy might be the answer. The state’s credit rating would take a beating in the near term with multiple municipal bankruptcies, but it would provide a clean or at least cleaner slate. The Mayor and City Council might not have to resign. New York was able to reinvent itself after its bankruptcy in the 70s.

New York City did not actually declare bankruptcy, although it did come dangerously close. Also, is New York City the most reasonable comparison in terms of financially distressed municipalities recovering from a fiscal crisis? My fear is that by declaring bankruptcy, we experience a situation closer to Vallejo, CA, or other cities like Harrisburg, PA or Bridgeport, CT (both declared bankruptcy but petition was rejected in court).

I have long wondered why it has taken this long to get to this point…Didn’t Cranston declare bankruptcy years ago in order to get out from under some onerous past deals?

I wish there was a better solution, especially when i see all the awesome in Providence that has been able to thrive not only in spite of the economy, but in spite of the politics of the city itself–all the food trucks, farmers markets, city farms and community gardens, small restaurants opening, little shops, many parts of the city’s housing market is still holding steady (for example, i could never afford to buy back my house in Fed Hill) and all of those are good things, and I hope that, again, in spite of whatever happens with the city, that these small and creative social and economic engines are able to continue to thrive, and thus the longest run-on sentence you’ll see today.

The longer the city waits to take action, the more dire circumstances will become. I hate to see people lose their jobs, but I think they need to start furloughing non-essential staff immediately, although it’s not going to completely close the gap.

I mean, what other options are there. Borrowing money? How many times has the city borrowed money to solve one crisis, only to have to deal with another crisis later? Retirees? See Central Falls. Non-profits? You might have a chance there, but nothing we can count on. Tax Increase? City Council says it’s off the table.

I hate to say it, but I don’t see many options or ideas available. It would be nice if someone or some organization other than
the city stepped forth and offered some assistance or solutions.

I usually defend the unions, but not this time. In addition to unsustainble retiree COLAs they want the city to pay for medical insurance rather than going on Medicare. If bankruptcy voids contracts, it will be hard to feel sorry for folks who rejected Medicare that most retirees are happy to get, indeed are worried about GOP led efforts in Congress to totally undermine that program.

Raising taxes will drive people out of the city. Short-sighted solution in my opinion. Why would people live here, if they could move 5-10 minutes away and pay significantly less taxes (besides the benefit of living in a cool city, of course)? I do like seeing Taveras confronting the issue head-on and not avoiding it though.

I live in Providence and pay the taxes because I like the city and I like being close to everything I need and do. However, if taxes go up any more, I will have to start seriously considering a move out of the city. I know people on this particular forum don’t really feel for those who complain about the expense of owning a car, but with the tax increase, my car taxes are literally half of what I pay on my house, and my car is worth 1/10th the value of my property and house.

I am pretty sure, though, the City Council will not consider a tax increase as a means to deal with these economic issues. They know a tax increase will only hurt them in the end.

Just a couple of observations and questions: It is my understanding that non-profits in RI (and possibly in Providence) are the largest segmet of corporate entities (I think by count). For example , what taxes does AS220 pay?Brown makes a goood argument regarding the innovation and jobs that the instituton brings to Providence. However, isn’t that true for many of the private companies especially start-ups too? I believe the corporate taxes (of various types –inventory, etc.!) for private industry in Providence are among the highest in the countryand I think this significantly detracts from business growth and job creation in private industry (which would alleviate much of the financial pressure in Providence (house buying, etc.). No wonder Providence has a high ratio of non-profits vs private industry: the cost structure is significantly different.

What if there was one tax rate for all non-residential property (possibly with a 1% net incerease in aggregate). Would that spread fairness and provide needed incentives for private business development?

With no concrete evidence to show here, I think that there may be “grandfathered” private commercial rates that may have disparity too.

Of course NY has a city income tax. That would certainly drive away people with such a stagnant private industry in Providence. Maybe if 111 Westmister St. was filled with lawyers and union executives:)

I haven’t crunched the numbers for the above but believe there is much legacy unfairness and, unfortunately (or possibly fortunately) a clean slate could provide increased confidence and long term predictability in the tax structure.

How about all those long term City Council members who approved these outrages deals without the benefit of actuarial/financial knowledge, wisdom or perhaps integegrity (based on campaign contributions).

I applaud and wish Mayor Tavares success. Wasn’t there a pension reform bill that Cicillini and Igliozzi had in-hand about 6 years ago?

While I agree that the colleges should pay more to the city, smaller nonprofits like AS220 should not be subject to increased taxes. AS220 does not have a billion dollars; nor are their employees or administrators making bank. There’s no comparison… How about taxing the Catholic Church for the Bishop McVinney Auditorium? I don’t even think they use it, and it cuts the city up into two.

I think they should just tax the Diocese of Providence as a whole entity. Bishop Tobin can’t seem to keep him mouth shut when it comes to political issues, which is what he’s supposed to do to keep a religious organization tax-exempt. They aren’t supposed to take part in the political process, including discussing legislation (the jerks even include a pamphlet about how marriage equality is bad in the pre-Cana classes Catholics are required to take before getting married).

The Bishop McVinney Auditorium makes me wonder; how many nonprofit owned parcels of land are there in Providence that are either (A) undeveloped–and have been so for years–or (B) have vacant or underutilized buildings? Are theses parcels taxed?

Some have rightfully questioned Brown for running for-profit ventures, such as the Brown Book Store, while not paying taxes on these properties. It makes me wonder about all the land that is bought up by big nonprofit colleges, churches, hospitals, etc, only to be left unused for years… I think that they should not only pay taxes on property that is used for profit, but also any land that they own but don’t use or develop.

Numbers coming through on Twitter from the Mayor’s announcement on a tax agreement with Johnson & Wales seem to put Brown on the hot seat. No one has a full story up yet, but it looks like just under $1 million per year from J&W with the potential for up to (reported as high as, not sure the factors) $14.5 million over 10 years.

Providence has long owned and maintained the reservoir, but city government gets nothing from this asset. Because of political machinations that hark to the 1980 governor election between then-Mayor Buddy Cianci and then-Governor J. Joseph Garrahy, the city is barred by state law from using the water system as a revenue source.

At a town hall meeting with the retirees, Mayor Taveras and Chief of Staff/Director of Administration Michael D’Amico provided an overview of the city’s fiscal emergency, presented a three-point proposal for reform of the city’s pension and health care systems and laid out a timeline for negotiations with retirees in order to restore fiscal stability in the capital city.

The Mayor and Mr. D’Amico took questions from the audience for one hour following their presentation.

“Our retirees cannot be successful in a failed city. Central Falls taught us that lesson,” said Mayor Taveras. “We cannot solve our fiscal problems without permanent, meaningful and difficult structural change. It is time to suspend COLAs for all our retirees. This is not only a question of necessity, but one of fairness.”

All retirees 65 and under pay a 20 percent co-share on their health benefits, just like current city employees already do

Retirees over 65 move to Medicare and a Medicare Supplement plan paid by the city

Suspension of the compounded annual raises (COLAs) of retirees until the city’s pension system is healthy

Taken together, these reform measures would save almost $29 million annually – with the plan to have retirees 65 and under contribute to their health benefits saving about $4 million, the switch to Medicare saving about $8 million, and the suspension of compounded annual raises saving about $16.8 million.

The Mayor and Mr. D’Amico stressed to the retirees that the reforms would not cause them great hardship: In moving eligible retirees to Medicare, the city will continue to provide a benefit to supplement what Medicare pays. Some retirees may incur cost increases for pharmacy and co-pays. The suspension of compounded annual raises will not in any way reduce any retiree’s current collection – it will simply hold it steady while the city pulls back from the edge of a fiscal precipice. The annual raises will be reinstated when the pension fund is 70 percent funded.

The Taveras administration has acted decisively to close a $110 million structural budget deficit, and has successfully reduced the deficit to $22.1 million with four months remaining in the current fiscal year. Mayor Taveras cut his own salary by 10 percent, reduced his Mayor’s Office budget by 10 percent, and declined his elected official pension. The administration made cuts in nearly every city department, laid off non-union staff, reduced the city’s workforce by more than 200 employees and negotiated new labor agreements with the unions representing the city’s firefighters, police, laborers and teachers.

With the City of Providence poised to run out of cash by the end of June, Taveras called on the retirees to appoint a steering committee by March 25 to negotiate with city. The Mayor set out a schedule for formal negotiations, in which the city and the steering committee representing retirees will meet at least twice a week, with a May 1 deadline to reach an agreement in time to enable Providence to end its fiscal year with a balanced budget.

Some police and fire retirees are represented by their retiree association and have already started negotiations with the Taveras administration. The city’s other retirees – teachers, laborer and non-union retirees – have no formal or informal association. Those retirees were encouraged to create a steering committee and begin conversations with the city.

If Providence is unable to close a $22.6 million budget shortfall by July 1, Providence faces the possibility of state intervention as has already occurred in Central Falls and East Providence. If Providence falls off the edge, retirees could lose as much as $900 million in benefits – a 73 percent reduction. Retirees in Central Falls saw pensions cut by up to 55 percent during bankruptcy proceedings.

“You will be better served by being partners in our effort to save Providence,” Taveras said. “We can just look up the road to Central Falls to see what can happen.”

While Providence’s current city workers, teachers, police officers and firefighters are foregoing raises, many of the city’s retirees collect 5 percent and 6 percent compounded raises every year dating as a result of decisions made in 1989, 1990 and 1991. As a result of such annual raises, each of the city’s top 25 retirees collects more than $109,000 this year in a pension. The retiree who collects the highest pension retired in 1991 with a salary of $70,500 and collected $196,000 this year. He collects more than five times the income of an average Providence resident, and he collects more money from the city as a retiree than any working Providence employee.

Without structural reform, Providence’s annual pension payment will grow from $58.9 million to $98.7 million in the next 10 years – a nearly 70 percent increase.

The city spends more than $30 million annually on retiree health care and has an unfunded obligation of $1.2 billion in other post-employment benefits, mostly related to health care. Earlier this year, the Taveras administration moved to shift its retirees over the age of 65 onto Medicare to save $8 million and structurally reduce the city’s unfunded post-employment benefits. In late January, a Rhode Island Superior Court judge prevented the city from shifting their coverage by issuing a preliminary injunction.

Mayor Taveras announced in his February 13 State of the City address that he would seek to negotiate with the city’s retirees to be part of the solution needed to save Providence. All of Providence’s 4,300 retired police, firefighters, teachers and municipal employees were invited to attend today’s town hall meeting. Four hundred eighty five retirees attended today’s meeting in person, and as many as 425 people logged on to follow the proceedings via an Internet live stream on the city’s website.